How CEOs, Taxes and Policymakers Fail the U.S.

 

Updated May 23, 2013 

Like it or not, stagnant growth increases the possibility of a double-dip recession. We’re in a precarious position, largely, because businesspeople and consumers lack confidence in the economy – for good reasons. 

Fourteen million Americans are unable to find a family wage job. For many available jobs, Americans lack education and skills to meet the specific needs of employers. Nearly 50 million Americans are receiving food stamps. 

Still, many big businesses are slow to hire until uncertainty is alleviated. They have healthy balance sheets after paying down debt, and they’re hoarding cash. 

Most small businesses don’t have adequate credit and can’t expand. Polls by the National Federation of Independent Business and other organizations show small business owners are angry about ObamaCare, which threatens their ability to stay in business. 

Consumers are stunned by high food and gasoline prices. Mortgage debt stresses many homeowners. And they’re angry because of gluttonous Wall Street chicanery, and the so-called leadership in Washington hasn’t balanced the budget since the Clinton years. 

Voters want lawmakers to tackle urgent economic problems. Instead, only a minority of federal policymakers has an adequate understanding of economic-growth principles, and they have the image of acting like a ruling class at the public trough. 

After 4+ years, the Obama Administration hasn’t produced any sound economic solutions. 

Did I leave anything out?  

Morale-busting headline 

Consumers and small business owners were angered by a Bloomberg headline: “CEOs Earned More Than U.S. Companies’ Tax Bills, Study Finds.” Incredibly, the Institute for Policy Studies issued a report divulging that 25 chief executives were paid more in 2010 than their companies actually paid in federal taxes. 

The report showed such companies averaged $1.9 billion in global profits. They include Boeing, Ebay, Cablevision Systems, and Verizon. What’s worse, while their CEOs were paid in the seven figures, some companies received government tax refunds. 

The Institute for Policy Studies’ examples: 

• Cablevision CEO James Dolan was paid $13.2 million, but the company had a $3 million corporate income tax benefit.
• EBay CEO John J. Donahoe received $12.4 million while his firm got $131 million in tax write-offs.
• Verizon CEO Ivan Seidenberg was compensated $18.1 million but his company netted $705 million in tax benefits. 

The Bloomberg article also reported a study by another nonprofit group, Citizens for Tax Justice. It claimed 11 companies received $62 billion in domestic profits, but only paid a “negative 3.6 percent tax rate in 2010.” 

True, the U.S. has a high corporate tax rate, but it’s negated by countless loopholes. 

Job stimulus is anything but 

Another disturbing headline: “Study: Half of Hired Stimulus Workers Were Already Employed.” 

The federal jobs stimulus is not well-designed when the stimulus only results in job shifting. But that’s what’s happening, according to the study by George Mason University. 

Even though workers have jobs, they’re hired by other firms – with the help of stimulus funds. The government would lead us to believe new jobs are being created, but 47.3 percent of the workers already had jobs. 

How can new consumers’ money enter and circulate in the economy, if we’re merely moving workers around?

Clearly, what needs to occur is widespread economic patriotism: 

• The tax code has to be rewritten and simplified to eliminate the unpatriotic tax write-offs.
• Public policy has to become productive – money for jobs and has to be invested for economic development, not wasted.
• Voters have to elect representatives who understand basic economics and who will work for the common welfare of this great nation.
• Parents should encourage their children to take advantage of educational opportunities when they first start school.
• Workers should understand inertia doesn’t work – they need to adapt so that their skills match employers’ needs.

When progress is made in these areas, confidence in the free-enterprise economy will return. 

From the Coach’s Corner, here’s more: 

• Federal Reserve Typifies What’s Wrong with Economy 
• Does the Federal Reserve Understand Small Business? 
• Only Fiscal Sobriety Will Prevent Further Fiscal Chaos 

 

“You can always count on Americans to do the right thing — after they’ve tried everything else.”                   

 - Winston Churchill

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

H.R. 1981 Is Well-Intentioned, But Would Big Brother Be Watching You?

 

Updated Feb. 1, 2012

The goal to protect children from Internet porn and predators is a worthy cause. However, for valid reasons, a bill in Congress designed to protect children is vehemently opposed by security experts and privacy activists.

Add me to the list. Why? With journalism experience concerned about upholding the principles of freedom and good government, the bill raises serious concerns.

The proposal also reminds me of salient principles in two famous books written by an English author, Eric Arthur Blair. Writing under a pen name, Mr. Blair lived from 1903 to 1950.

Among a myriad of honors after his passing, Time Magazine named one of Mr. Blair’s books among the 100-best English novels. In 1983, Mr. Blair made the cover of Time Magazine. The book is also No. 31 on the Modern Library list of best 20th century novels.

Mr. Blair was a strong advocate of freedom. During World War II, he also worked for BBC to combat the sinister propaganda emanating from Nazi Germany.

“Freedom is the right to tell people what they do not want to hear,” he wrote.

In his most-honored book, “Animal Farm: A Fairy Story,” the author’s allegorical novel told about the events leading to the era of Joseph Stalin and Communism.

In another noteworthy book, “Nineteen Eighty-Four,” he wrote a fictional account of an oligarchical dictatorship.

“Big Brother is watching you,” he would write.

The author’s pen name: George Orwell.

So in being mindful of the books’ themes and a career that includes being a government watchdog as a journalist, the prospect of this proposed federal legislation raises red flags.

The House of Representatives bill, H.R. 1981, would require Internet service providers to keep records of their customers for one year. The ultimate goal is to identify users via their IP addresses. Sponsors claim they want to protect children.

Privacy issue

Ordinarily, the goal of protecting children is a terrific idea. But the means to the end are unacceptable. Violating the privacy of Internet users is an abhorrent thought.

“The data retention mandate in this bill would treat every Internet user like a criminal and threaten the online privacy and free speech rights of every American, as lawmakers on both sides of the aisle have recognized,” says attorney Kevin Bankston of the Electronic Frontier Foundation in an article on Threatpost.com.

“Requiring Internet companies to redesign and reconfigure their systems to facilitate government surveillance of Americans’ expressive activities is simply un-American,” he adds. “Such a scheme would be as objectionable to our Founders as the requiring of licenses for printing presses or the banning of anonymous pamphlets.”

An ISP client told me such record-keeping costs would not adversely affect his firm.

“When investigators develop leads that might result in saving a child or apprehending a pedophile, their efforts should not be frustrated because vital records were destroyed simply because there was no requirement to retain them,” Threatpost quotes Rep. Lamar Smith (R-TX), a bill sponsor.

“This bill requires ISPs to retain subscriber records, similar to records retained by telephone companies, to aid law enforcement officials in their fight against child sexual exploitation,” he adds.

Fortunately, not everyone in Congress agrees with Rep. Lamar, according to Threatpost.

“The problem arises when data retention is government mandated,” says Rep. Jim Sensenbrenner (R-Wisc.). “It is the government’s role to conduct criminal investigations through the established legal process, but it is not the role of government to mandate how private businesses arrange storage procedures independent of the legal process.

“Simply put, the decision to store data should be a business decision and not a government decision,” concludes Rep. Jim Sensenbrenner.

In Internet-security matters, I always check with arguably the nation’s leading authority, Dr. Stan Stahl (www.citadel-information.com).

“The devil is always in the details,” says Dr. Stahl. “I sure would like the ability to go back and find out who was at a particular IP address on a certain date and time when a client of mine received an email carrying the Zeus Trojan from that IP address.”

Questions arise

However, Dr. Stahl raises some questions: “Just how much pedophilia is there and exactly how is this going to control it? Is this a real problem or is this a candidate for budget cutting? Why one year? Why not 6 months? Or 18 months?  Is there anything more than a random guess as to why we’re doing this?

“All this law will do is drive all but the dumbest of them to simply cover their tracks through things like advanced tunneling, anonymization and encryption,” adds Dr. Stahl. “Survival, as always, will go to those who adapt.”

He, too, raises privacy concerns.

“Those of us old enough to remember the 60s can only hazard a guess as to the consequences of the government having the ability to track our every move on the Internet,” adds Dr. Stahl. “Americans have a deep history of not trusting government; not all of this is irrational.”

The debate seems to be in vain. Dr. Stahl says pedophiles already have a tool to stay under the radar. He cites an MIT article.

(Note: Dr. Stahl has been my go-to security expert since 1984. I was introduced to his expertise via our mutual membership in Consultants West, ww.consultantswest.com).

From the Coach’s Corner, here are two informative links:

Dr. Stahl’s security blog

Mr. Orwell’s iconic book: Nineteen Eighty-Four

“The only sure bulwark of continuing liberty is a government strong enough to protect the interests of the people, and a people strong enough and well enough informed to maintain its sovereign control over the government.”    

-Franklin D. Roosevelt

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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?

 

Government Spending Causes Companies to Cut Back, Harvard Study

 

With a massive $16 trillion in debt and 24 million Americans either unemployed or under-employed, lyrics from a 1955 Johnny Mercer hit song, “Something’s gotta give,” are apropos about the U.S. economy.

The federal government has become a major part of the economy. Government entitlements are at an all-time high. But paychecks from private sector employers are the lowest-ever per capita, according to a USA Today newspaper analysis. It’s a 2010 analysis, but my sense is that it’s still applicable.

Note: For the record, Social Security is not an entitlement program for the millions of Americans who paid into it all their working lives.

The cause is best described by another bombshell from a Harvard Business School’s study of four decades of data.

The 47-page study is entitled, “Do Powerful Politicians Cause Corporate Downsizing?” It reveals that massive U.S. borrowing and spending has wasted trillions of dollars in flawed efforts to stimulate the economy – there are now fewer jobs and there is higher federal debt. Stimulus spending by the government results in less business investment.

Three professors analyzed spending – specifically, the government expenditures resulting after a lawmaker in the House of Representatives or Senate became chair of a committee.

Earmarks increased over 40 percent to benefit the states chaired by Senators in the three top committees. The average per committee was 20 percent in the House.

In other words, we’re talking about pork. A lot of pork.

But the initial assumption by the professors – Lauren Cohen, Joshua Coval and Christopher Malloy – was that politically connected companies benefited from the entrenched committee chairs. That turned out to be a major fallacy. Just the opposite occurred.

In an interview published on Harvard’s Working Knowledge Web site, Dr. Coval said the average company in those states did “significantly cut physical and R&D spending, reduce employment and experience lower sales.”

Why?

“Some of the (federal) dollars directly supplant private sector activity – they literally undertake projects the private sector was planning to do on its own,” Dr. Coval said.

“Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. For instance, our effects are strongest when unemployment is low and capacity utilization is high. But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement,” he added.

Using my preferred verbiage, if pork spending doesn’t stimulate private-sector growth, what are his public policy suggestions?

“Our findings suggest that they should revisit their belief that federal spending can stimulate private economic development. It is important to note that our research ignores all costs associated with paying for the spending such as higher taxes or increased borrowing. From the perspective of the target state, the funds are essentially free, but clearly at the national level someone has to pay for stimulus spending. And in the absence of a positive private-sector response, it seems even more difficult to justify federal spending than otherwise,” he responded.

One would think that politicians would understand that the government’s ability to function hinges on tax revenue. But they fail to understand or care that little tax revenue is derived from entitlement programs. The more the government owns, the less the economy is worth.

And it’s worth comparatively little. (See: Fiscal Fact-Check: Deficit, Social Security, and Medicare)

Something’s gotta give or our grandchildren will not experience the American dream. More like the American nightmare.

From the Coach’s Corner, if you agree the trend is unacceptable, you might want to contact your Congressperson or Senators.

“There is no public tooth fairy. Father Christmas does not work on the Treasury staff this year. You can never bail someone out of trouble without putting someone else into trouble.”

-Arthur Laffer

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.